Yellen Defends 'Forceful' Fed Easing

The Federal Reserve is still aggressively stimulating an anemic U.S. economic recovery that has failed to bring rapid progress on employment, Fed Vice Chair Janet Yellen said on Monday.

In a rare address to the AFL-CIO, a politically influential labor union, Yellen, seen as a potential successor to Fed Chair Ben Bernanke next year, focused on the anomalously weak nature of the recent economic expansion.

"The gulf between maximum employment and the very difficult conditions workers face today helps explain the urgency behind the Federal Reserve's ongoing efforts to strengthen the recovery," Yellen said in her prepared remarks.

"We have taken, and are continuing to take, forceful action to increase the pace of economic growth and job creation."

The U.S. economy contracted slightly in the fourth quarter and, while that decline was seen as temporary, continues to grow at or below 2 percent, far below the rate economists say is needed to bring down the 7.9 percent jobless rate.

Yellen pointed to erratic U.S. budget policy as a source of weakness in the recovery.

"I expect that discretionary fiscal policy will continue to be a headwind for the recovery for some time, instead of the tailwind it has been in the past," she said.

In response to the deep financial crisis and recession of 2007-2009, the Fed lowered interest rates to effectively zero and bought over $2 trillion in mortgage and Treasury securities in an effort to keep down long-term interest rates.

It began a new, open-ended round of $85 billion monthly bond purchases in September. (Editing by Andrea Ricci)